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HomeMy WebLinkAbout06-10-2013 ph4 2013-14 water fund review & 2013-15 water rate adoptcounctI âqenòâ pepopt I\4eet¡ng Date June 12.2013 Iteh Number PH4 FROM: Prepared By: CITY OF SAN LUIS OBISPO Carrie Mattingly, Utilities Director Wade Horton,'Water Division Manager Cheryl Blair, Administrative Analyst SUBJECT:2OI3-I4 WATER FT.IND REVIEW AND 2OI3-I5 WATER RATE ADOPTION RECOMMENDATIONS i. Review and accept the 2013-14 annual Water Fund financial review; 2. Conceptually approve the 20I3-I4 Water Fund budget, with final action on June 17 , 2013 with the adoption of the 2013-15 Financial Plan; and 3. Adopt a resolution adopting a new water rate structure and increasing water service charges by seven and one-half percent (7.5%) effective July 1, 2013 and five and one-half percent (55%) effective July 1, 2014 provided there is no majority protest against such increases and rate structure change. DISCUSSION This report presents the annual Water Fund review. It highlights adjustments made to the Water Fund Analysis since the preparation of the 2011-13 Financial Plan Supplement and the 2012-13 budget. As outlined in the 2013-14 Water Fund Analysis, which forecasts the financial position of the Water Fund through2024-25, the City is able to: 1. Provide adequate water supply for the community; 2. Fund debt service for the completed'Water Treatment Plant improvements and the City's share of long-term financing obligations for the Nacimiento water supply; 3. Meet bond covenants and debt ratios to maintain a strong bond rating; 4. Fund reserves as set by policy; 5. Continue capital maintenance projects to maintain the community's water infrastructure assets; and, 6. Provide recycled water for landscape irrigation and construction water purposes. 2013-14 Water Fund Analysis Report The attached 2013-14 Water Fund Analysis Report (Attachment 1) includes changes in financial position, analysis assumptions, an update on major activities and programs, and incorporates the following key financial impacts: PH4.1 2013-14 Water Fund Review Page 2 1. Agreement between the City and Cal Poly with updated water rates commencing on July 1, 20t3. 2. 2012-13 salary and benefit updates. 3. Increased City PERS contributions commencing on July 1, 2013. 4. Seven Significant Operating Program Changes. 2013-15 Financial Plan: 2013-14 Budget Revenues Overall revenues are projected to increaseby 4% ($726,100) in20I3-I4 from the prior fiscal year. This reflects an increase in water service rates of 7.5o/o and a conservative estimate of development impact fee revenue. Revenue from water sales, including sales to Cal Poly, reflects prior year sales with the proposed rate increases applied. While development impact fee revenues for 2012-13 are projected to be $1.i million, for 2013-15 they are projected to be $670,000 each year. This is an increase of two percent ($16,000) over 20lI-12 actual amounts. The assumptions about development impact fee revenues for 2013-15 reflect a strongly conservative approach based on an economy that is still recovering and inherent volatility in the building industry. Over-estimating development impact fee revenues can have an adverse impact on the Fund's ability to support capital improv ement proj ects. Operating Program Expenses The Water Fund's operating program budget was developed in order to provide the community with high quality, safe and reliable water services. The budget includes seven Significant Operating Program Change requests, as summarized on page 4 of Attachment 1. Of the total operating program cost increase about half is attributable to a temporary need for additional project management to assist in delivering important capital projects to the community in a timely malrner. This is a short-term need driven by the anticipated volume of capital project workload and available resources in Public Works at this time. The additional resources will be used to accomplish both Water and Sewer projects. CapitøI Improvement Pløn Long-term infrastructure planning is essential to providing high quality, safe and reliable water services for the community. The City's 2013-18 five-year Capital Improvement Plan (CIP) identifies approximately $2.5 million per year in projects that will maintain and replace the City's water system infrastructure. These projects include pipeline replacements, major equipment upgrades, ongoing treatment processes, and technology. A summary of the projects can be found on page 5 of Attachment 1 and detailed project descriptions are included in the 20I3-I5 Financial Plan (crP). Debt Service Updøte In 2012-13, an annual decrease of approximately $161,000 in debt service expenditures was realized due to the rehnancing of the 2002 Water Revenue bonds. An additional $29,300 annual debt obligation for an energy project was completed in 20I2-I3. No new debt obligations are projected for the Vy'ater Fund until 2021-22, when an upgrade to the Water Treatment Plant is anticipated. PH4-2 20'13-14 Water Fund Review Page 3 During the process of refunding the 2002 bonds, Fitch Ratings assigned the bonds a rating of AA and cited many positive reasons such as "...the city's exemplary f,rnancial planning and long history of implementing disciplined rate increases..." as a factor in the rating. However, they also cautioned that "Fitch is likely to downgrade the rating if the utility fails to authorize an adequate rate package for 2014 and beyond in2013." This comment is based on maintaining a debt coverage ratio that is high enough to provide confidence that the Water Fund's ongoing revenues are sufficient to cover ongoing expenses plus annual debt service payments. In Fitch's opinion, this ratio should be approaching 200% coverage by 2015. This means that "net" revenues (ongoing revenues less ongoing costs) need to equal 200o/o more than the annual debt service payments. A downgrade in bond rating would mean future borrowing would be more expensive. It is also possible that a downgrade for 'Water bonds would impact the rating of other future bonds issued by the City. The value and importance of maintaining the AA bond rating was a significant consideration.in analyzing the fund and setting the proposed rates. Proposed Revisions to the Water Rate Structure and Water Service Charges In compliance with the requirements of California Constitution Article XIII (commonly referred to as Proposition 218), a Notice of Public Healing was mailed to all water customers informing them of the proposed changes to water rates as well as the proposed change to the water rate structure and their opportunity to protest the changes. Ovel the course of five study sessions in 2012, the City Council thoroughly reviewed the City's water rate structure and identified five goals and objectives for a rate structure: 1. Revenue Stability and Predictability 2. Stability and Predictability of Rates 3. Simple and Easy to Understand and Administer 4. Fair Allocation of Total Cost 5. Discourage Wasteful Use The current water rate structure is commodity-based with charges based on the volume of water used. At the December 4,2012 meeting, Council directed staff to proceed with actions to modify the existing rate structure to include a f,rxed charge plus a two-tier variable water rate for all customers, effective July 1,2013,with final adoption as part of the 20i3-15 Financial Plan. The table below reflects the proposed water rate structure and the proposed water rate increases that would take effect July 1, 2013 andJ,ily 1,2014. r 1 unit : 1 00 Cubic Feet : 748 gallons of water 2 For service to customers outside the City, the \¡r'ater rates are two times the "in-City" rate. 3 Recycled water charges are 90% ofpotable water charges. Proposed \ilater Rate Changes The proposed water rate increases for 2013-14 and 20I4-I5 are slightly lower than previously forecasted in the 20ll and 2012 Water Fund Analyses presented to the City Council over the past two years and represent the final large increase required to pay for the multi-source water supply Base fee (minimum charge) Volume Charges 0-8 units 9+ units $6.56 per unit $s.00 .20 unit$8 per $6.92 per unit $8.65 per unit $5.28 PH4.3 2013-14 Water Fund Review Page 4 and bring the capital improvement program into closer alignment with Council goals for infrastructure replacement. After 2013-15, rate increases are projected at much lower levels. The following table displays historical rate increases as well as the proposed rate increase for 2013-14 and2014-15 and the projected rate increase for 2015-16. Adopted rate increases Proposed Proposed Projected 2006-01 2007-08 2008-09 2009-10 2010-l 1 2011-12 2012-13 2013-14 2014-15 2015-16 12%t3%13%12Yo 1t%10%9%7.50 5.5o/o 3.5% The average residential water customer uses eight units of water per month. If the proposed rate structure and rate increase is adopted, the following table shows the impact on customers, based on different water use levels. The $5.00 base fee included in the proposed rates satisfies Council's primary goal of Revenue Stability and Predictability established during the Water Rate Workshops, I One (1 ) unit : 1 00 Cubic Feet : 748 gallons ofwater 2 Water rate increases for the average ¡esidential customer are$2.77 monthly in2013-14, plus $3.16 monthly in2014-15 3 For service to custorners outside the City, the vr'ater rates are two times the "in-City" rate. In addition to providing sufficient revenue for the City's multi-source water supply, rate increases are necessary in order to meet bond obligations related to coverage ratios. The coverage ratio provides some level of certainty to bond holders that the City has sufficient revenues to pay bond holders. It measures ongoing revenues against total debt selice expenses. The Water Fund's bond covenants state that the City will set rates such that revenues are at least 125% of the debt service payment. Based on information from a major bond rating ageîcy, in order to maintain the City's favorable rating, the debt coverage ratio should be at200o/oby 2015-16. In order to achieve this debt coverage ratio, the proposed rate increases are necessary. úV'ater Røte Protests Under Proposition 218, property owners and customers directly responsible for the payment of the fee subject to the proposed rate increase may submit a written protest against the proposed rate increases. The protest must be in writing, received by the City Clerk at or before the public hearing on June 12, 2013, identify what is being protested, and contain the service address. The parly signing the protest must be listed on the account as the person responsible for payment of the water bill andlor the property owner. In the event that a protest is submitted by the owner and also by the tenant responsible for payment of the bill, then one valid protest is counted for the account. If written protests are filed by a majority (50% +1), the applicable proposed rate may not be imposed. Amajorityof approximately 14,700 customers is 7,351. As of };/lay7,2013,a total of 10 written protests were received by the Office of the City Clerk. All protests will need to be validated. The City Clerk will provide an updated summary of the protests received at the June 12,2013 City Council meeting. 12 units 25 unitsConsumption'3 units 8 units 2 $18.7s $54.71 $85.99 $ 187.65Water Current $90.28 $ 196.88Water Proposed Julv 1. 2013 $24.68 $s7.48 $26.04 $60.64 s9s.24 $207.69Water Proposed July I,2014 Water BillCom rlsonResidential Month PH4.4 2013-14 Water Fund Review ATTACHMENTS 2013-14 Water Fund Analysis1. 2.Resolution Modifung the Water Rate Structure and Water Service Rates for 2013-15 e5 Fund Wâter -) PH4.5 ATTACHMENT 1 2013 Water Fund Analysis June 12,2013 Prepared by the Utilities Department crty o[ sân Luls ontspo PH4-6 Attachment I Page2 cffy oÊ sân Lurs oBrspo 2013 Water Fund TABLE OF CONTENTS I.OVERVIEW III. 2OI3-I5 FINANCIAL PLAN A. Summary of Operating Programs B. Significant Operating Program Changes C. Capital Improvement Plan and Forecast ilI. WATER RATE SETTING A. Water Rate Structure B. Proposed'Water Rate Changes IV ASSUMPTIONS A. Revenues B. Expenses C. Debt Service V MAJOR ACTIVITIES AND PROGRAMS A. 2012-13 Update B. 2013-14 and Forecast EXHIBIT A- FINANCIAL SCHEDULES 4.1. Changes in Financial Position 4.2. Assumptions for Fund Projections 4.3. Capital Improvement Plan PH4 .7 Attachment 1 Page 3 cffiy o[ sân Luls oBtspo 2013 Water Fund Analysis I. OVERVIEW This report presents the financial condition of the Water Fund, based on the 2013-15 Financial Plan operating and capital programs. The 2013 Water Fund Analysis recommends slightly lower than previously anticipated rate increases for 2013 and 2014. It addresses the highest priority capital improvement projects and supports the provision of high quality, safe, and reliable water services to the community. II. 2013.15 FINANCIAL PLAN Water Division operating programs are summarized in Table A. The summary of operating programs reflects the net operating program budget amounts for 2013-15, which includes the proposed operating budget increases, as fuilher discussed in this report and displayed in Table B on the following page. Summary of Operating ProgramsA. 2014-15 ilVater Source of Su.pply 0l j Ul íl ít ¡ e s C o ns erva tio n 1!I/øte-y Treatment :ll/øter Dislrìbulion :Utilities Customer Sewìce Q) : ll/ater A d ministratìo n/E ng i neering ll/ater Franchise Fees TOTAL WATER SRVICES OPMATING PROGRAMS I (');Source of Supply co_sts include,about $6.2 million annually e) : The Customer Service program is funded 50% from the W 2a for the Nacimiento Water Project ater Fund and 50% from the Sewer Fund 7,716,200 318,900 2,336,000 1,132,800 294,900 558,700 13,005,900 t 296,400 Ø, I For the f,rrst time in many years, the 2013-15 two-year financial plan development process did not include identifying operating cost reductions. HoweveÍ, a rigorous and thorough review of operating costs and trends was conducted in development of the proposed budget. As outlined in Table B, the significant operating program change increases are necessary to continue to meet the operational requirements to provide high quality, safe, and reliable water services for the community. Proposed significant operating program changes include a total increase of $115,500 in2013-14 and $26,100 in 2014-15. Of the total operating program cost increase about half is attributable to a temporary need for additional project management to assist in delivering important capital PH4.8 Attachment I Page 4 projects to the community in a timely manner. This is a short-term need driven by the anticipated volume of capital project workload and available resources in Public Works at this time. The additional resources will be used to accomplish both water and sewer projects. The net operating budget changes are incorporated in the'Water Fund Change in Financial Condition (Exhibit 4.1). Significant Operating Program Change s 2013-14 BI]DGET 2014-15 BUDGET Wøter Treatmenl rMinor Capital (Machinery & Equþrrent) !t-aboralgry Qgwlces 16,000 Wøter Distribution i Annual Soft ware -L-i9-9ns ing and Maintenance Utilitíes C uslomer Servìce :Replacement of Electric Scooters (50% share) W at er A dmí nislra li o n/E ng ine ering iSite Specific Safety Plans ] Tenp orary Project Management 10,100 , Backflow Device at 879 Morro Street Building (50% share) Waler Services Operaling Program Cost Increases i: 26,100 Detailed supporting documents for each request is provided in AppendixA of the Prelirninary Financial Plan, pages XX to XX. For capital improvement plan (CIP) projects, the City has identified a goal of replacing approximately 2Yo of its infrastructure on an annual basis which assumes a 50 year useful life for existing pipelines. The economic downturn significantly impacted the Water Fund and its 201I-I3 capltal plan, as originally approved, was substantially reduced from prior years. As funding became available during 20ll-13, itwas directedto highpriority CIP projects such as design services forthe 16- inch waterline that serves much of the Johnson Avenue/San Luis Drive area. Overall, for the past 20 years, the City has been making signif,rcant investments in its water supply, treatment, and distribution system infrastructure which has resulted in increased reliability. The 2013-15 Capital Improvement Plan requests are based on the Preliminary 20I3-I5 Financial Plan. Table C below displays the proposed five-year Capital Improvement Plan for water selices. The proposed capital plan is based on the highest priority projects for the Water Fund, with capital expenses based on individual project budget estimates. After three years with a significantly reduced level of new capital water distribution projects, the Water Fund is gradually returning to more appropriate funding levels (about $2.2 million annually) for distribution system improvements and other water-related infrastructure. 10,000 0010, 5,000 25,000 58,800 5,50011 PH4.9 Attachment 1 Page 5 C Capital Improveme nt Plan ll/ater Treatment Pl ønf . Major Facility Maintenance ' Fleet Replacement: Compact Pickup :Fleet Replacement: Service Body Truck lltaler Dìstribulìon I Distribution System Inprovements I Dis tribution Purrp Station As s es s nrent Study 'Resewoir Maintenance / Tank Replacements, I Equipment Replacement : Cenerator (50% share) iDistribution Puup Station Upgrades Fleet Replacement: Service Body Truck Wøler Customer Servíce : Fleet Replacement: Conpact Pickups Wsler Conservalion : Fleet Replacement: Conpact Pickups A dminì s tral ì o n a nd E ng i ne ering ' Fleet Replacement: Sedan Mobile Equiprnent Lifts & Safety Stands Water Divis ion As set Man agement Plan Total Water Services CIP ' Share d C ¡ty InÍo rmeti o n Te c hno I o gy ' .Enterprise Storage Gowth : Document Management System : Telemetry SystemUpgrade - Construction , .Virtual Private Network (VPN) Appliances Network Firewalls i :Network Sec.urity Upgrades I :Offrce Application Software Replacement : :Network Equipment Replacement i iRadio Handhelds and Mobile Replacements I lStorage Capacity Upgrade and Replacement Total Share ofTechnology CIP TOTAL WATM. FUND CAPITAL PLAN 1,704,800 2,016,300 2,800 5,200 1,500,000 15,500 I 1,500 6,500 12,400 17,000 1,541,500 29,400 2015-20120176 PROPOSED 500,000 00 500,000 18 PROPOSED 60,000 24,300 310,000 110,000 360,000 152,900 50,000 PROPOSED 450,000 1,1,5 50,000 30,000 24,300 16,200 70,0001,420,000 I 5 25,200 33,100 1,125,000 255,000 500,000 730,000 50,000 700 ,400 0, 24,300 00 l,ggo,ooo 0 26,200 5s,7000 2,936,600 2,621,000 1,935,700 Maintaining the water system infrastructure, including pipeline replacements, major equipment upgrades, ongoing treatment processes, technology, and planning for long-term infrastructure upgrade and replacement, is essential to providing high quality, safe, and reliable water services for the community. III. WATER RATE SETTING A. \ilater Rate Structure Over the course of five study sessions in 2012, the City Council reviewed the City's water rate structure and identif,red five goals and objectives for a rate structure: 1. Revenue Stability and Predictability 2. Stability and Predictability of Rates PH4 - 10 z&tflifrrilM Attachment I Page 6 3. Simple and Easy to Understand and Administer 4. Fair Allocation of Total Cost 5. Discourage Wasteful Use The current water rate structure is commodity-based with charges based on the volume of water used. At its December 4, 2012 meeting, the Council approved a new rate structure which establishes a fixed charge plus a two-tier variable water rate structure for all customers, effective July 1, 2013, with final adoption as part of the 20I3-I5 Financial Plan. The table below reflects the proposed water rate structure and the proposed water rate increases that would take effect July 1, 2013 andJuly 1, 2014. I 1 unit = 100 Cubic Feet: 748 gallous ofwater 2 For service to customers outside the City, the water ¡ates are two times the "in-City" rate. 3 Recycled water charges are 90% ofpotable water charges. B. Proposed Water Rate Changes The proposed water rate increases for 20I3-I4 and 20I4-I5 are slightly lower than previously forecasted in the 20II and 2012 waler fund analyses presented to the City Council over the past two years and represent the final large increase that is required to pay for the multi-source water supply and bring the capital improvement program into closer alignment with Council goals for infrastructure replacement. After 2013-15, rate increases are projected at lower levels. The following table displays historical rate increases as well as the proposed rate increase for 2013- 14 a¡d2014-15 and the projected rate increase for 2015-16. The average residential water customer uses eight units of water per month. If the proposed rate structure and rate increase is adopted, the following table shows the impact on customers, based on different water use levels. I One (1)unit: 100 CubicFeet:748 gallons ofwater 2 Water rate increases for the average residential customø are$'2.77 monthly in 2013-14,plus $3.16 monthly in 2014-15 3 For service to customers outside the City, the water ¡ates are two times the "in-City" rate. PH4 - 11 Base fee (minimum charge) Volume Charges 0-8 units 9+ units $6.56 per unit $8.20 per unit $5.00 $6.92 per unit $8.65 per unit $5.28 Adopted rate increases Proposed Proposed Proiected 2006-07 2007-08 2008-09 2009-10 2010-1 I 2011-12 2012-13 2013-14 2014-ts 2015-16 t2%t3%13%12%tt%t0%9%7.50Á 5.s%o 35% Consumption I 3 units 8 units 2 12 units 25 units Water Current $18.7s $54.71 $85.99 $187.6s Water Proposed July 1, 2013 s24.68 $57.48 $e0.28 $196.88 Water Proposed July 1, 2014 $26.04 $60.64 s9s.24 $207.69 Residential Month Water lìill artson Attachment 1 PageT In addition to providing sufficient revenue for the City's multi-source water supply, rate increases are necessary in order to meet bond obligations related to coverage ratios. The coverage ratio provides some level of certainty to bond holders that the City has suff,rcient revenues to pay bond holders. It measures ongoing revenues against total debt service expenses. The Water Fund's bond covenants state that the City will set rates such that revenues are at least l25o/o of the debt service payment. Based on information from a major bond rating agency, in order to maintain the City's favorable rating, the debt coverage ratio should be at200Yoby 2015- 16. In order to achieve this debt coverage ratio, the proposed rate increases are necessary. IV. ASSUMPTIONS The following provides more detail for the key assumptions in Exhibits 4.1. and A.2. (financial schedules) to this report. The financial schedules include the Water Fund changes in financial position and assumptions for the Water Fund projections included in the analysis. A. Revenues Revenue projections for water service charges are calculated based on the percentage increase in rates applied to the 2012-13 revised revenue budget, assuming no net growth in water deliveries when compared to metered water usage estimates as projected for 2012-13 year-end. Revenue projections for Cal Poly are based on the 2012 Agreement between the City and the University. This agreement, covering the period beginning July 1, 2013, set the proportion (46%) of the non-residential rate the University pays to account for the University's difference from other customers (the University owns its own water supply and capacity interest at the Water Treatment Plant associated with the 1994 plant upgrade). Development impact fee collection is calculated by taking the actual 20Il-12 base year revenue and adjusting it by projected inflation fbased on consumer price index (CPI) and growthl. CPI is projected at l.4o/o in 2013-14 and 2.0o/o in 2014-15; growth is assumed at0.25o/o in20l3-14 and 0.50% in20I4-I5. For 2012-13, water development impact fee revenues are projected at $1.1 million, which is 73Yo ($468,900) greater than the prior year actual of $646,000 in 20ll-12. Development impact fee revenues for 2013-15 are estimated at about $670,000 annually. The conservative assumptions related to development activity reflected in the 2013-15 revenue projections are based on an economy that is still recovering and inherent volatility in the building industry. B. Expenses Operating and Møinlenønce Expens es Total operating and maintenance costs for 2013-15 are based on the proposed 20I3-I5 Financial Plan. Forecasted operating and maintenance costs assume an inflationary rate of 2.8Yo for non-staffing (2.5% for stafhng) in 2015-16, with 2.8%o for non-staffing (2.5% for staffing) in20l6-I7, and3.0o/o for both staffing and non-staffing in 2017-18. I 2 J PH4 - 12 I Attachment 1 Page 8 Significant non-staffing operating costs for water services are for: (1) the City's share of the Nacimiento 'Watff Project debt service and operation and maintenance cost that is facilitated through the County, and accounted for as an operating expense; (2) electric utility seryices to pump raw water from the reservoirs, for water treatment and distribution of potable water, and for the production and distribution of recycled water, and; (3) water franchise fees paid to the General Fund. In the two-year 2013-15 Financial Plan when antualized, the Nacimiento debt servlce payment is about $4.7 million annually and the Nacimiento operation and maintenance costs are nearly $1.5 million annually, electric utility service is projected at over $500,000 annually, and water franchise fees paid to the General Fund at nearly $600,000 annually. With the Nacimiento water supply project debt financing facilitated through the County, the City's share of the project debt service is accounted for as an operating expense. The City's share of the Nacimiento project annual costs began in 2010-11, with operating costs and an interest only payment for debt service. The full debt sen¿ice payment, including principal and interest, is about $4.7 million annually beginning in 2011-12. Operation and maintenance costs for the pipeline are approximately $ 1.5 million annually. Electric utility rate assumptions, as provided by PG&E, include a rafe increase of 5.0% in 2013-14 and 5.0Yo in 2014-15 for commercial and industrial accounts. Water franchise fees are calculated based on 3.5Yo of audited gross revenues from the previous year, excluding investment and property revenues, other revenues, and bond proceeds. Public Utilities Code Sections 6001 et seq. and 6201 et seq.; and Section 39732 of the Government Code, provides cities with the authority to impose fees on privately owned utility companies and other businesses for the privilege of using the City's infrastructure in the course of daily business. Given that the City's water pipes, valves, and services are within the City's streets (infrastructure) to distribute water for the community, a franchise tax is charged to the water fund and payable to the general fund. Cøpitul Improvement Pløn Project Expenses Project budget estimates in the capital plan forecast include inflationary adjustments, assuming a moderate increase in material costs ovet time (e.g., price per foot of pipe). The 2013-18 five-year CIP program restores the distribution system replacement program that was suspended during 20II-I3 due to economic conditions. Equipment and vehicle replacements are projected based on current mileage and age guidelines, as adjusted by an evaluation of vehicle condition by the City's fleet manager. It is anticipated the actual cost of completing capital projects will vary from the budgeted cost estimate. These cost estimates are generally conservative, therefore it is expected those projects listed for each year will be completed. Should the bidding climate change dramatically, and costs increase above those estimated, project timelines will be amended. 2 -t PH4 - 13 C. Attachment I Debt Service Payments 1. Debt service for the 1994 upgrade of the Water Treatment Plant (now the 2012 Refunding Water Revenue Bond debt payment) is $564,800 in 2013-14 and, $569,600 in 2014-15. This reflects an annual savings of approximately $123,000 from the refunding of these bonds in20l2. 2. Debt service for the 2006 upgrade of the Water Treatment Plant, the 2006 'Water Revenue Bond, is $1,034,600 in 2013-14 and $1,034,000 in20I4-I5. 3. Debt service for the repayment of the State Revolving Fund loan for the construction of the'water Reuse system is $525,500 annually in 2013-15. 4. Debt service for the Water Fund's proportionate share of the City's Public Safety Communications Center is $28,900 in2013-14 and $28,600 in20l4-I5.In addition, the Water Fund's share of the Public Safety Radio System Upgrade is $37,600 in 2013-14 and $37,600 n 2014-15. When combined, the Water Fund's share is $66,500 in2013-14 and $66,200 in 2014-15. Debt service is currently projected in the long-term financial forecast at $479,500 annually beginning in 202I-22 for Ozone Generation Upgrades at the Water Treatment Plant, based on total project costs currently estimated at 516.6 million including S100,000 for study in 2018-19, $1.5 million for design in2019-20, and, $15 million for construction in 2021-22.It also assumes that the Fund will only borrow $8.5 million for these improvements and use pay-as-you-go funding for the balance. MAJOR ACTIVITIES AND PROGRAMS 2012-13 Update S alinas Res ervoir Infrastructure (Jp grades The San Luis Obispo County Flood Control and Water Conservation District operates the Salinas Reservoir under contract with the U.S. Army Corps of Engineers. Through payments identified in the city's source of supply program, the City pays for the total cost of operating and maintaining Salinas Reservoir and the delivery system for transporting raw water to the City's water treatment plant. The pump station that sends water to the City was built in 1941-42 and many of the original components required upgrade. The pump station project was completed october 2012 at atotal project cost of $1.4 million which was paid for in cash. Water Dis tribution Sys t em Improvements Design began in March 2013 to replace approximately 6,130 feet of 16-inch cast iron transmission main that runs from Highway 101 to Bishop Street, primarily along Johnson Avenue and San Luis Drive. This waterline provides water to approximately half the City. The transmission line is at the end of its useful live and has failed twice in the past two years. Construction is anticipated in two phases spanning Fall2013 to Summer 2014. Council approved the project as part of the 20I2-I3 Mid-Year Budget Review. 5 v. A. I 2 PH4 - 14 3 Attachment 1 Page l0 Water Master Plan Update Preparation of the 2013 Water Master Plan began in May 2013, which will update the 2000 Water Master Plan and 2004 Water Reuse Master Plan. The Master Plan update will include the development and calibration of a hydraulic model. The model will identify system improvements to maximize hydraulic efficiency and reduce energy consumption. In addition, the update will identify backbone infrastructure required to serve the Orcutt and Airport Specif,rc Plan areas, as well as Avila Ranch, including distribution system expansion and additional water storage requirements. Council approved the project as part of the 20I2-I3 Mid-Year Budget Review. Telemetry System Upgrade Design An upgrade to the Utilities Department telemetry system for the water distribution and the Whale Rock water conveyance systems was approved in the 2009-11 Financial Plan. The telemetry systems provide oversight and operation of the facilities which are critical for the efficient and reliable delivery of water. The current systems are over 20 years old and have far exceeded the normal life for this type of system. The project was awarded October 2012 and the 50o/o design submittal was received in May 2013. Construction is anticipated to begin Fall2013. 4 B. 2013-14 Forecast 2. 1 Stenner Canyon Raw Waterline Replacement The City replaced the majority of the Stenner Canyon Raw Waterline that delivers water from the Salinas Reservoir to the Water Treatment Plant in 2009. Due to wetland permitting issues identified during construction, the replacement of approximately 400 feet of the pipeline was deferred. The design phase to replace the remaining segment is anticipated to begin Fall2013. Water Storage Reservoirs - Maintenance and Tank Replacement Serrano Tank is experiencing metal loss due to corrosion. In order to ensure that full tank lifespan is realized, interior and exterior coating work is required. In addition, safety improvements are needed affecting the access ladder and manway, roof guardrail, and roof surface. A seismic retrofit is also required. Project design is anticipated to begin Fall2013. {<x<* PH4 - 15 Attachment I Page 1l EXHIBIT A 2OI3 \ryATER FUND FINANCIAL SCHEDULES PH4 - 16 CH A N G E S IN FI N A N C I A L PO S I T I O N . WA T E R FU N D Re v e n u e s In v e s t m e n t an d Pr o p e r t y Re v e n u e s Se r v i c e Ch a r g e s Wa t e r Sa l e s Wa t e r Se r v i c e Ch a r g e s Sa l e s to Ot h e r Ag e n c i e s De v e l o p m e n t Im p a c t Fe e s AB 93 9 Re i m b u r s e m e n t Ac c o u n t Se t - u p Fe e s Co n n e c t i o n Ch a r g e s an d Me t e r Sa l e s Ot h e r Re v e n u e s To t a l Re v e n u e s Ex p e n d i t u r e s Op e r a t i n g Pr o g r a m s Pu b l i c Ut i l i t i e s Ge n e r a l Go v e m m e n t To t a l Op e r a t i n g Pr o g r a m s Ca p i t a l Im p r o v e m e n t Pl a n De b t Se r v i c e To t a l Ex p e n d i t u r e s Ot h e r So u r c e s (U s e s ) Pr o j ec t e d MO A Ad j u s t m e n t s PE R S em p l o y e r ra t e in c r e a s e Pr o j e c t e d De b t Pr o c e e d s Ot h e r So u r c e s (U s e s ) To t a l Ot h e r So u r c e s (U s e s ) Re v e n u e s an d Ot h e r So u r c e s Ov e r (U n d e r ) Ex p e n d i t u r e s an d Ot h e r Us e s Wo r k i n g Ca p i t a l , Be g i n n i n g of Ye a r Wo r k i n g Ca p i t a l , En d of Ye a r l l- l 12 - 1 3 l4 20 t 5 Re v i s e d Ac t u a l 33 8 , 6 0 0 i2 s , 0 0 0 16 9 , 2 0 0 17 , 0 9 1 , 7 0 0 17 , 4 2 0 , 2 0 0 19 , 1 4 6 , 3 0 0 19 , 0 7 6 , 9 0 0 l5 - l6 20t6-l 14 0 , 8 0 0 19 5 , 7 0 0 222,000 11 , 6 1 4 , 9 0 0 97 8 , 8 0 0 70 1 , 1 0 0 13 4 , 7 0 0 10 6 , 3 00 28 , 3 0 0 31 , s 0 0 19 , 7 9 1 , 3 0 0 Attdrment 2017 -l 261,800 20,406,200 20,959,0001 20 14 , 1 1 5 , t 0 0 1 ,2 1 0 , 0 0 0 64 6 , 0 0 0 12 3 , 7 0 0 94 , 8 0 0 14 , 0 0 0 48 9 . 5 0 0 1s , 0 0 6 , 4 0 0 88 2 , 3 0 0 1 , 1 14 , 9 0 0 12 6 , 6 0 0 10 0 , 0 0 0 ?5 00 0 30 . 0 0 0 16 , 1 3 1 , 9 0 0 89 6 , 4 0 0 66 2 , 0 0 0 12 8 , 4 0 0 10 1 , 4 0 0 27 , 0 0 Q 30 , 0 0 0 17 , 0 r 9 , 2 0 0 94 5 , 7 0 0 67 8 , 6 0 0 13 1 ,0 0 0 10 3 , 4 0 0 27 , 5 0 0 30 , 6 0 0 1 8,143,300 I,008,200 724,300 138,100 109,000 29,000 32,30018,596,900 1,03 3,400 749,800 142,000 1 12,100 29,800 33,200 16 , 7 7 7 , 7 0 0 19 , 4 4 2 , 8 0 0 19 , 7 1 2 , 4 0 0 19 , 5 2 6 , 9 0 0 19 , 6 1 1 , 9 0 0 19,701,900 19,349,900 (6 9 , 2 0 0 ) 12 , 3 s 6 , 7 0 0 1, 3 0 9 . 4 0 0 13 , 6 6 6 , 1 0 0 1 ,4 8 1 , 6 0 0 1. 6 3 0 . 0 0 0 (5 9 2 , 2 0 0 ) (2 1 8 , 2 0 0 ) 13 . 3 1 ' 7 . 5 0 0 13 , 9 7 9 , 5 0 0 1. 3 1 6. 7 0 0 1s , 2 9 6 , 2 0 0 1, 9 5 9, 0 0 0 2. 1 8 7 . 6 0 0 20 0 , 0 0 0 (1 , 8 2 2 , 6 0 0 ) 13 , 0 9 9 , 3 0 0 3, 0 5 9 , 2 0 0 1, s 8 8 , 9 0 0 3, s 0 0 , 0 0 0 13 , 0 0 5 , 9 0 0 1. 2 6 8 . 8 0 0 14 , 2 ' 7 4 , 7 0 0 3, 2 4 6 , 3 0 0 2. 1 9 1 . 4 0 0 (3 2 3 , 1 0 0 ) (1 , 8 8 9 , 2 0 0 ) rt , 2 ' 7 6 , 7 0 0 2, 8 s 4 , 9 0 0 1, 7 0 2 , 8 0 0 4, 0 0 0 , 0 0 0 13 , 0 1 7 , 1 0 0 1. 2 6 8 . 8 0 0 13 , 2 7 8 , 3 0 0 1, 3 0 4 , 3 0 0 14 , s 8 2 , 6 0 0 2, 8 3 6 , 6 0 0 2, 1 9 2 , 6 0 0 (5 1 , 7 0 0 ) (4 1 , 6 0 0 ) (9 9 , 3 0 0 ) 80 , 2 0 0 9, 7 8 6 , 3 0 0 2, 9 t 6 , s 0 0 1, 8 5 9 , 4 0 0 4, 5 0 0 , 0 0 0 13 , 5 5 0 , 0 0 0 1,336,900 14 , 8 8 6 , 9 0 0 13,841,900 \,311,000 i 5,2 1 8,900 1,935,100 2,194,200 t4 , 2 8 5 , 9 0 0 2, 0 4 5 , 7 0 0 2, 1 9 5 , 3 0 0 ( 13 0 , 3 0 0 ) (2 0 , 8 0 0 ) (1 5 1 , 1 0 0 ) 39 8 , 8 0 0 9, 3 87 , 5 0 0 2, 8 5 1 , 2 0 0 1, ' 7 9 6 , s 0 0 4, 2 s 0 , 0 0 0 2,621,000 2,t94,000 (5s,900)(41,600)(97,500)606,800 9,866,s00 2,971,400 1,91s,200 4,150,000(s7,600)(41 ,600) (s 9 2 , 2 0 0 ) 20 0 , 0 0 0 (2 5 3 , 9 0 0 ) 13 , 0 9 9 , 3 0 0 11 , 2 7 6 , 7 0 0 9, 3 9 7 , 5 0 0 9, 7 8 6 , 3 0 0 9, 8 6 6 , 5 0 0 10,473,300 11,984,300(99,200)1,51 1 ,000 10,473,3 00 3,043,800 1,963,000 6,000,000 977,500 PH4 - 17 Re s e r v e (2 0 % of op e r a t i n g ) 2, 1 3 3 , 2 0 0 Ra t e St a b i l i z a t i o n Re s e r v e (1 0 % of s a l e s re v e n u e ) Ca p i t a l Re s e r v e fo r WT P up g r a d e Un r e s e r v e d V/ o r k i n g Ca p i t a l 5t 1 5 t 2 0 1 3 10 , 3 6 6 , 1 0 0 3, 1 2 8 , 6 0 0 82 9 , 8 0 0 88 2 , 6 0 0 59 0 , 6 0 0 830,700 3.0%$ I.612.000 $4,71 8,500 $569,600 $ 1,033,600 $525.s00 $0 $0 $36.900 $28,600 0.50o/n 230%2.s% 20 1 6 - 1 7 2. 8 % $ 1 ,s 6 5 . 7 0 0 s4 , 1 1 4 , 6 0 0 $5 7 2 . 0 0 0 $1 . 0 3 1 . 0 0 0 $s 2 5 . 5 0 0 s0 $0 $3 6 . 9 0 0 $2 8 , 6 0 0 05 0 % 22 1 % 3% 20 1 5 - 1 6 2. 8 % $ 1 ,5 2 0 , 6 0 0 s4 , 7 1 4 , 3 0 0 $5 6 8 . 6 0 0 $ 1 ,0 3 2 . 8 0 0 $5 2 5 , 5 0 0 $0 $0 $3 7. 1 00 $2 8 , 6 0 0 0. 5 0 % 20 1 % 3. 5 Y " 20 1 4 - 1 5 2. 0 % s] ,4 7 1 , 0 0 0 $4 . 7 r 3. s 0 0 $5 6 9 . 6 0 0 $ 1 ,0 3 4 , 0 0 0 $s 2 s , 5 0 0 $o $o $3 7 , 6 0 0 $2 8 , 6 0 0 0. 5 0 % 18 6 % s. 5 % 20 1 3 - 1 4 r. 4 % s1 , 4 8 8 , 4 7 8 $4 . 7 1 3 . 7 0 0 $5 6 4 . 8 0 0 $ l, 0 3 4 , 6 0 0 $5 2 5 , 5 0 0 $0 $0 $3 7 , 6 0 0 $2 8 . 9 0 0 0. 2 5 o / " 13 6 % 7. s % ¡ CA T E G O R I E S Ut i l i t i e s Se r v i c e Fe e s CP I Pr o j e c t i o n s Na c i m i e n t o Pa y m e n t fo r Op e r a t i n g an d Ma i n t e n a n c e & Re s e r v e s Na c i m i e n t o Pa l ¡ m e n t fo r SL O Co u n t y De b t Se r v i c e De b t Se r v i c e - 20 7 2 W a t e r Re v e n u e Bo n d s De b t Se r v i c e - 20 0 6 V/ a t e r Re v e n u e Bo n d s De b t Se r v i c e - St a t e Re v o l v i n g Fu n d Lo a n - Wa t e r Re u s e Pr o j e c t Le a s e Pu r c h a s e - En e r g y Pr o i e c t s Pr o j e c t e d De b t Se r v i c e - 20 2 1 Wa t e r Tr e a t m e n t Pl a n t Up q r a d e De b t Se r v i c e - 20 0 9 Pu b l i c Sa f e t y Ra d i o Sy s t e m Up g r a d e De b t Se r v i c e - 20 0 9 Pu b l i c Sa f e t y Co m m u n i c a t i o n s Ce n t e r De v e l o p m e n t Im p a c t Fe e Gr o w t h Ra t e (l ) Re v e n u e De b t Co v e r a g e Wa t e r Se r v i c e Ra t e In c r e a s e RO J E C T I O N AS S U M P T I O N S . WA T E R FU N D Attachment Exhibit 4.2 201 7-1 I (1 ) De v e l o p m e n t Im p a c t Fe e re v e n u e is ba s e d on Re s o l u t i o n No . 95 8 2 (2 0 0 4 ) an d ca l c u l a t e d as fo l l o w s : Ba s e ye a r 20 l l - 1 2 re v e n u e Ad j u s t e d ba s e in c r e a s e d by pr o j e c t e d CP I an d DI F gr o w t h ra t e 66 2 , 0 0 0 67 8 , 6 0 0 70 1 , 1 0 0 72 4 , 3 0 0 149,800 Fa c t o r s as s u m e d to re d u c e de v e l o p m e n t im p a c t fe e co l l e c t i o n : ba s e re v e n u e ad j u s t m e n t f' o r on e - t i m e la r g e de v e l o p m e n t s ; ma p s ve s t e d pr i o r to es t a b l i s h m e n t of cu r r e n t de v e l o p m e n t im p a c t fe e s , an d ; lo w e r th a n lY o pe r ye a r gr o w t h . A st u d y is cu r r e n t l y un d e r w a y to up d a t e th e Wa t e r De v e l o p m e n t Im p a c t Fe e s ba s e d on cu r r e n t de m o g r a p h i c s an d re v i s e d co s t es t i m a t e s for Master Pl a n in f r a s t r u c t u r e pr o j e c t . At th i s ti m e , ba s e d on pr e l i m i n a r y in f o r m a t i o n , it is an t i c i p a t e d th a t th e ou t c o m e of th i s st u d y ma y in c l u d e re c o m m e n d a t i o n s fo r fe e re v i s i o n s to th e wa t e r im p a c t fe e s . PH4 -' Attacru'rent 1 CA P I T A L IM P R O V E M E N T PL A N . WA T E R FU N D WA T E R SE R V I C E S PR O J E C T DE T A I L AN D PH A S I N G - PU B L I C UT I L I T I E S Wa t e r Tr e a t m e n t Pl ø n t Ma j o r Fa c i l i t y Ma i n t e n a n c e Ai r Co m p r e s s o r Re p l a c e m e n t s St e n n e r Ca n y o n Ra w Wa t e r l i n e Re p l a c e m e n t Fl o a t i n g Co v e r Re p l a c e m e n t s Fl e e t Re p l a c e m e n t : Co m p a c t Pi c k u p Fl e e t Re p l a c e m e n t : Se r v i c e Bo d y Tr u c k Tr e a t m e n t Pl a n t an d Oz o n e Ge n e r a t i o n Up g r a d e Wa t e r Di s t r i b u t i o n Di s t r i b u t i o n Sy s t e m Im p r o v e m e n t s - Pi p e l i n e s Wa t e r St o r a g e Re s e r v o i r Ma i n t e n a n c e an d Ta n k Re p a c e m e n t Eq u i p m e n t Re p l a c e m e n t : Ge n e r a t o r (5 0 % sh a r e ) Fl e e t Re p l a c e m e n t : Po r t a b l e Ge n e r a t o r s (5 0 % sh a r e ) Di s t r i b u t i o n Pu m p St a t i o n Up g r a d e s Fl e e t re p l a c e m e n t : Pi c k u p Fl e e t re p l a c e m e n t : Ca t e r p i l l a r Ba c k h o e Lo a d e r & At t a c h m e n t s Fl e e t re p l a c e m e n t : Po r t a b l e va c u u m pu m p Fl e e t re p l a c e m e n t : Se r v i c e bo d y tr u c k ll / a t e r C us l o m e r Se r v i c e Fl e e t re p l a c e m e n t : Co m p a c t Pi c k u p s Co n s e r v a t ì o n Fl e e t re p l a c e m e n t : Co m p a c t Pi c k u p Ad m i n i s t r ø t i o n øn d En g i n e e r í n g Fl e e t re p l a c e m e n t : Se d a n Fl e e t re p l a c e m e n t Fo r e c a s t Mo b i l e Eq u i p m e n t Li f t s & Sa f e t y St a n d s Ca r r y o v e r Pr o j e c t s 15 2 , 9 0 0 50 , 0 0 0 50 0 , 0 0 0 50,000 500,000 1 10,700 24 , 3 0 0 51,400 24 , 3 0 0 2s,200 16 , 2 0 0 33,700 9, 1 0 0 1, 9 5 9 , 0 0 0 1, 9 5 9 , 0 0 0 1, 7 0 4 , 8 0 0 2, 0 1 6 , 3 0 0 2, 8 3 6 , 6 0 0 2,62I,000 I ,880,000 20 1 2 - 1 3 BU D G E T 20 1 3 - 1 4 BU D G E T 10 , 0 0 0 50 , 0 0 0 24 , 3 0 0 I, 5 5 0 , 0 0 0 30 , 0 0 0 20 1 4 - 1 5 BU D G E T 20 1 5 - 1 6 PR O P O S E D 50 0 , 0 0 0 59 , 1 00 1, 4 2 0 , 0 0 0 35 7 , 5 0 0 20t6-17 PROPOSED 450,000 1 , 170,000 730,00020t7-18 PROPOSED 1, I 25,000 255,000 13 0 , 0 0 0 10 0 , 0 0 0 80 , 0 0 0 1, 1 1 0, 0 0 0 36 0 , 0 0 0 To t ø l Wø t e r Se r v í c e s CI P Re q u e s t s PH4 - 19 Attachment 1 CA P I T A L IM P R O V E M E N T PL A N - WA T E R FU N D WA T E R SE R V I C E S PR O J E C T DE T A I L AN D PH A S I N G - PU B L I C UT I L I T I E S Sh a r e d In f o r m ø t i o n Te c h n o lo g y Te l e m e t r y Sy s t e m Up g r a d e - Vy ' a t e r Di s t r i b u t i o n Co n s t r u c t i o n Vi r h r a l Pr i v a t e Ne t w o r k (V P N ) Re p l a c e m e n t Ne t w o r k Fi r e w a l l s Ne t w o r k S ec u r i t y Up g r a d e s Ne t w o r k Sw i t c h i n g In f r a s t r u c t u r e Re p l a c e m e n t Ra d i o Ha n d h e l d s an d Mo b i l e Re p l a c e m e n t s Do c u m e n t Ma n a g e m e n t Sy s t e m Of h c e Ap p l i c a t i o n So f t w a r e Re p l a c e m e n t (5 % sh a r e ) En t e r p r i s e St o r a g e Gr o w t h St o r a g e Ca p a c i l y Up g r a d e an d Re p l a c e m e n t To t ø l Sh a r e of In f o r m a t i o n Te c h n o l o g y CI P TO T A L WA T E R FU N D CA P I T A L PL A N 20 t 2 - t 3 BU D G E T 20 1 3 - t 4 BU D G E T 20 1 4 - 1 5 BU D G E T 17 , 0 0 0 12 , 4 0 0 29 , 4 0 0 20 t 5 - 1 6 PR O P O S E D 0 2016-17 PROPOSED 020t7-r8 PROPOSED 26,200 29,500 5 5,700 1, 5 0 0 , 0 0 0 1s , 5 0 0 I 1, 5 0 0 6, 5 0 0 5, 2 0 0 2, 8 0 0 0 I ,5 4 1 ,5 0 0 1, 9 5 9 , 0 0 0 3, 2 4 6 , 3 0 0 2, 0 4 5 , 7 0 0 2, 8 3 6 , 6 0 0 2,621,000 1,935,700 PH4-?^' ATTACHMENT 2 RESOLUTION NO.(2013 Series) A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO MODIFYING THE WATER RATE STRUCTURE AND WATER SERVICE RATES WHEREAS, it is the policy of the City of San Luis Obispo to review enterprise fund fees and rates on an ongoing basis and to adjust them as required to ensure that they remain equitable and adequate to fully cover the cost of providing services; and WHEREAS, a comprehensive analysis of Water Fund operating, capital, and debt service needs has beenperformed for fiscal years 2013-15 through 2017-I8; and WHEREAS, this comprehensive analysis has been revised based on updated revenue and expenditure information; and \ryHEREAS, the Council has reviewed the water service rates necessary to meet system operating, capital and debt seruice requirements; and WHEREAS, the Council desires to modify the existing water rate structure to a water rate structure, which includes a base rate plus a two tier variable water rate for all customers; and WHEREAS, a public hearing was properly noticed and held on June 12,2013; and WHEREAS, a majority protest, as contemplated by Article XIII D of the California Constitution, was not received by the conclusion of the public hearing. NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo as follows: SECTION 1. Resolution No. I027I (20II Series) is hereby rescinded, effective 11:59 p.m. June 30,2013. SECTION 2. The modified water structure and rates set forth in Exhibit "A" are hereby adopted, establishing water rates effective July l, 2013 and July | , 2014. SECTION 3. The water system access charges for emergency pu{poses, such as fire protection, are increased from $50.84 per month to $54.65 per month, effective July 1, 2013 and $57.66 effective July 1, 2014 to reflect the increase in water rates. Upon motion of , seconded by , and on the following vote: AYES: NOES: ABSENT: R PH4 - 21 Resolution No. Page2 (2013 Series)ATTACHMENT 2 The foregoing resolution was adopted this _ day of _ 2017. Mayor Jan Marx ATTEST: Maeve Kennedy Grimes City Clerk APPROVED AS TO FORM: J. Christine Dietrick City Attorney PH4 - 22 Resolution No. Page 3 (2013 Series) MONTHLY WATER SERVICE RATES I unit : 100 Cubic Feet = 748 gallons ofwater Fo¡ service to customers outside the City, the water rates are two times the "in-City" rate. Recycled water charges are 90% ofpotable water charges. ATTACHMENT 2 EXHIBIT A Base fee (minimum charge) Volume Charges 0-8 units 9+ units $6.56 per unit $8.20 per unit $s.00 $6.92 per unit $8.65 per unit $s.28 PH4 - 23 Page intentionally left blank. PH4 - 24 REC ËIVEt) JUN 0 6 2013 SLO ÈR =councrL memopânr)um cffy oç san lurs oBrspo, utrlffr€s òepantment AGENDA GORRESPONDENCEDATE: June 6,2013 TO: Mayor and City Council VIA: Katie Lichtig, City Manager FROM: Carrie Mattingly, Utilities Director SUBJECT: Response to Correspondence from Richard Schmidt I received a request by a Council Member to provide information related to correspondence written by Richard Schmidt. We did our best to identify the key points from the correspondence. If I missed the mark, don't hesitate to send me an email requesting additional information you need to ans\ryer questions related to this issue. Or, feel free to send any community member to the Utilities Department - we'd be happy to provide them factual information from which they can draw their own conclusion. Many of the percentages and dollar amounts cited in the correspondence are not accurate. Rather than rebut every point, the following information is provided to give you a factual summary of the main issues we drew out of the correspondence. Issue: Rate increases related to the Nacimiento Pipeline Project Information: Council has a long history of supporting incremental rate increases over time instead of large increases all at once. In February 2004, staff presented information to the City Councilthat stated rate increases of at least seven percent were going to be needed for six years to support the revenue requirements of the Nacimiento Pipeline Project. This was an estimate based on the best information at the time (design and construction costs were estimates) and did not include other CIP expenses (example: water treatment plant upgrade) that would occur during this period of time. The 2013 water rate projections show that rates are stabilizing and any additional increases after the next two years will be moderate. Issue: Commitment to water conservation Information: The City Council and staff continue to support water conservation and offers many tools on the city website to assist water customers to effectively and efficiently use this precious resource. Staff also assists customers in person. Our community does a great job conserving water. Promoting water conservation, while an important component of the water rate structure, is not the sole purpose of a water rate structure. As we learned from the study sessions conducted in 2012, the guiding principles behind water rate structure design take into account a Council Memorandum June 6, 2013 Page 2 variety of factors. Additionally, the structure must meet the legal requirements of Proposition 218. Water conservation is one of the top five goals Council decided were important for a rcte structure. Here are all of the goals you agreed upon for a rate structure: l. Revenue stability and predictability 2. Stability and predictability of the rates 3. Easy to understand and administer 4. Fair allocation of costs 5. Vy'ater Conservation Issue: Proposed water rate structure perceived inequity: changes to tier pricing, elimination of three tier pricing, and fixed base fee Information: Up until2007, the water rate structure had two tiers for all customer classes (i.e, single family residential, multi-family, and commercial). The proposed rate structure returns to this two tier composition in order to meet all five of the Council goals for a rate structure. The current structure's third tier only applies to single family customers. Separating out a specific class of customers for an added charge or tier creates issues with the fair and equitable allocation of cost. The proposed rate structure is aligned with Proposition 218 requirements. During the water rate structure study (five public study sessions and one business meeting) we learned that during our peak irrigation month, 413 out of 14,800 customers were in the third tier. We also learned that the assumptions we were making related to lower income households (that they used the lowest amounts of water) were not supported by the data. We verified we had programs in place that offer assistance to lower income households. We did understand the change to a structure that included a monthly $5.00 base fee (regardless of amount of water used) would impact the lowest water users the most during the first year of the new water rate structure and also learned that about 80% of the cost to run the water utility was fixed. Council had spirited discussion regarding these points and worked hard toward balancing all five goals. We also acknowledged, from the first study session, in any rate structure change there would be "some winners and some losers". On the wastewater side, the rate structure already includes a fixed base fee plus a volume charge. Issue: Lack of information on water bills Information: There used to be no information conceming the pricing tiers on the water bill. When the City moved to a new utility billing system at the beginning of 2011, a complete breakdown of the water charges by tier were included on the bill. Also included on the bill is up to twelve months water use history which helps the customer visually see their water use trends. Council Memorandum June 6,2013 Page 3 Issue: Transparency related to Water Fund expenditures Information: There have been open houses after work hours offering one-on-one consultation with community members, ads in the Tribune, the fund review and budget is posted on the City's website, and information is shared in the Resource. The Utilities Department staff would be delighted to talk with any one and share information that will help answer people's questions related to where the money goes. Issue: High cost of wastewater treatment Information: The type of technology used for the City's treatment plant was chosen because it was the best option for complying with the state's water quality discharge requirement to San Luis Obispo Creek. Alternative technologies such as marsh-based final treatment were evaluated but deemed inadequate because of land requirements (lack of land available), soil types for percolation, and the inability to reclaim the water from this type of system for reuse within the community. The City continues to pursue sustainable technologies in its wastewater treatment process by incorporating energy efficient equipment and processes into the Water Reclamation Facility. An example is the most recent private/public partnership with PG&E to design and build nine energy measures including the use of methane gas produced during the treatment process to generate electricity. Again, don't hesitate to give me a call should you have any questions I can assist you with answering. Attachment Email correspondence from Richard Schmidt From : rschmi dt@rain.org frschmidt@rain.org] Sent: Wednesday, June 05, 2013 1l:45 AM Pacific Standard Time To: Marx, Jan; dcarpen@,slocit)¡.ore; Ashbaugh, John; Smith, Kathy Subject: Water Rate Increase Council Members, I am deeply disturbed and dumbfounded by the proposed rate restructuring for water, and the "increases" for water and sewer service. They are a major shift in city policy, regressive, mean, and totally unnecessary. What they do is shift the cost of water service off the shoulders ofbig users and developers and onto the shoulders ofwe resident schmucks who are trying to do what you've asked us to do: conserye water. This is fundamentally unfair I hope you will rethink. I object to both the water and sewer increases. My thinking is laid out in the letter below. For your possible convenience, I've also appended the letter below as a word fìle, which will make its formatting easier to read. Richard Schmidt Dear Council Members: How a city assesses fees to its residents tells a lot about a city's values Your plans to raise fees for residentialwater and sewer says a lot about our city's declining values of fairness and equity, as well as its actions towards the environment To assess what the increased water fees meant, I cracked some numbers, figuring out base water bills (minus city utility tax) for four different hypothetical users. Here's what I found. For simplicity, I've rounded to the dollar. (Water is sold by the "unit," 100 cubic feet, about 750 gallons,) . For a seriously conserving consumer, using 5 units per month, the bill goes from $31 to $38, $7 more, about a21o/o increase. . For a conserving household using I units, the bill goes from $47 to $58, $11 more, about a 23o/o increase. . For a non-conserving household using 25 units, the bill goes from $189 to $192, a mere $3 more, less than a 2% increase. . For a waterhog using 100 units, the bill decreases from $915 to $807, a whopping $108 less, a 12o/o decrease. A number of observations can be made: . Despite the city's claim, this is NOT conservation-based pricing. One doesn't have a SALE for large users and claim this encourages "conservation." . The new pricing is an effort to hit the small guy where it hurts, and to curry favor with water wasters. lt represents a fundamental shift of fairness in billing by shifting the costs for our water system downwards, which is unfair, undemocratic, and disrespectful of most residents. How can a reduction for top users mean they're actually paying their fair share? . A good city doesn't make such regressive unfairness a matter of policy. . A good city doesn't proclaim it stands for conservation, yet practice the opposite. This perverse water pricing is what the city calls "rate restructuring." There are three moves the city plans to effect this change: . First is increasing the cost for the lowest tier of water usage, what's commonly called the lifeline tier, by about 4%, while decreasing the top tier, the profligate user's top rate, by 160/o. . Second is eliminating the current three-tier pricing schedule, by which the unit cost of water increases significantly the more one uses. ln its place will be a two{ier system that catches almost every household in its top tier. Why this bizarre regressive, anti- conservation move? . Third is the imposition, on top of rate increases for some and rate reductions for others, of a regressive "fixed" monthly fee which hits the poor hardest, and would be totally without purpose if true conservation pricing had large users subsidize lifeline usage in return for their water-wasting habits - which, by the way, is actually how city water rates worked till now. lt appears this is a deliberately regressive move by the city's elite-focused power structure. The $60 annual "fixed" fee, on top of raising the lowest tier pricing, is plain meanness on the city's part. lt is completely unnecessary; till now, all costs were recovered through water rates, which is how it should be in a fair system. Any fixed fee on top of paying for water use is regressive, not progressive. You call this fee "fixed," but it will go up every year, just like the regressive "fixed" sewer fee instituted several years ago. The sole purpose of the fixed fees is to shift the costs of providing water (and seweQ off the shoulders of those who demand the most and onto the shoulders of those who use the least. Water pricing doesn't have to be so mean and regressive. ln a well-run city it wouldn't be. A small southern California water provider I'm familiar with has low-key talk about conservation, and a pricing system that produces conservation. lnstead of SLO's two tiers, this provider has five. The lowest is lifeline-priced at $1.50 per 750 gallons (SLO's new equivalent: $6.56). Prices escalate through the tiers: 33% higher for tier 2,80Vo higher for tier 3, 177o/o for tier 4, and a whopping 243% for tier 5. ln SLO, under the new rates, the spread between bottom and top tier pricing is a piddling 25%. The proposed rate restructuring indicates this city isn't interested in conservation pricing. Further evidence the city really doesn't care about conservation is the lack of information on water bills. The bills contain no way to understand the pricing of tiers, and the volume of water one is entitled to from each before prices jump up. (At the conservation-priced water provider I refer to above, everything's clearly explained on the bills.) The 2011 Grand Jury noted this deficiency, and asked the city to make its bills more informative. The city refused, and thus foregoes the most obvious method of creating conservation consciousness, something PG&E's known and done for decades. As I said, all indications are the city doesn't care about conservation. Seemingly, the city's answer to the Grand Jury is that you'lljust dilute, and eventually do away with, tiered conservation pricing altogether. That certainly is the implied direction behind this "restructuring." As for sewer rate increases, this comes about as an unfortunate result of the city's refusalto use comparatively inexpensive state-of-the-art biologically based final stage sewage treatment rather than the engineers' preferred energy-guzzling chemical factory approach. With very little understanding of alternatives, the Council has given staff direction to continue unnecessarily on this misguided anti-consumer/anti-environmental path rather than undertaking system improvements that would be sustainable both for the earth and for rate payers. This is tragic, and it represents unimaginative "leadership" on the Council's part. You need to go back to the planning board for the sewer upgrades used to justify the proposed rate increase, at the same time unwinding some of the toxic and economic damage created by your existing high-tech engineered system, and come up with a more reasoned and reasonable approach. Heck, this isn't rocket science: the TVA developed these methods decades ago so that ratepayers wouldn't perpetually be in hock to equipment manufacturers, electric utilities and chemical companies. ln conclusion, I'm asking: 1. That you not adopt the current proposals for water and sewer rate in creases/restru ctu ri n g. 2. That you develop instead a water rate regime that INCREASES CONSERVATION PRICING ABOVE THAT IN THE CURRENT 3-TIER SYSTEM. 3. That you reject the very idea of having a regressive "fixed" fee on top of water use- based fees, and that instead you resolve that use-based rates will continue to support our water system. 4. That you carefully review what the water fee structure is used to pay for, and that you eliminate from the fee structure all costs associated with non-productive garbage, like the perennially annoying publication "Resource" which is paid for with our utility user fees. (l'll wager you could cut our bills by about $25 per year just by killing "Resource.") 5. That you engage with competent conservation-minded, environmentally-conscious, sustainable-rate advisers to rethink how the city deals with its sewage treatment responsibilities prior to undertaking any tertiary treatment "improvements" that will lock us into more high-energy, high-impact, perennially-more-costly approaches to sewage treatment. 6. As part of the above, I'd hope you'd create a sewage fee structure more like conservation-based water fees rather than vice versa; i.e., use-based without any fixed fee (the latter, recall, was an interim step between a totally-fixed fee regimen and a use- based fee system). Thank you. Richard Schmidt JUN I 2,2013 VED RKcounctl memopân June 12,2013 AGENDA o RRESPONDENCE TO City Council c Date v lt ults Item VIA:Katie Lichtig, City Manager FROM: Carrie Mattingly, Utilities Director Response to citizen inquiry regarding information related to tiered water rate structure, conservation of water resources, and clarification of who recommended water rate structure. In20l2, the City Council had six meetings on the water rate structure (five study sessions). During the study sessions Council decided upon these five goals for a rate structure: 1. Revenue stability and predictability 2. Stability and predictability of the rates 3. Easy to understand and administer 4. Fair allocation of costs 5. Discourage wasteful use With the knowledge that there were inherent conflicts between some of the goals, Council performed an in-depth examination of five different rate structures in order to best balance those conflicts. There was productive debate and examination of the impacts of various rate structures on the community. Council, in support oftheir agreed upon goals and based on data presented during the study sessions, approved the rate structure that is now before the community for its consideration. Unless a majority plus one (7,45I) protest the rate structure, prior Council action is affirmed. Rate structure clarification: While adopting the water rate structure (unless there is a majority protest) is part of the staff recommendation in the June 12,2013 Council Agenda Report, the rate structure that is before the community was approved by the City Council at its December 4,2012 meeting. The latest Utilities Department Resource stated staff was recommending the rate structure which understandably gave the impression it was not Council approved. Please forgive me for any confusion this statement may have caused. Tiered water rate structure: Three billing tiers were created for residential in2007 . Prior to that time, there were two tiers for all water users. A tiered water rate is meant solely to encourage conservation. Two tiers worked well in the past to discourage wasteful water use and is expected to continue to do so in the future.